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Monday, May 14, 2007

Floor Exits: Specialists Walk As E-Trading Takes Over (NYPost)

By RODDY BOYDThe New York Stock Exchange's specialists, long the fixtures of the floor's economic life, are beginning to disappear as the brutal realities of electronic trading and a changed mission whittle away their ranks.

Tasked with executing the public's trading orders - including using their own capital to inject liquidity into a stock - the Big Board's specialists have seen their ranks drop by more than half as the firms hemorrhage money.

The declining headcount comes even as floor traders proved their worth in February, when the Dow Jones industrial average tumbled 416 points due to a technical glitch. Matters would have been considerably worse had it not been for human traders stepping in with pen and paper to execute trades.

In a race to remain economically viable, the specialists are dropping headcount as fast as they are losing money.

One source said Bank of America Specialists, responsible for making a market in GE among 400 other stocks, has lost about $10 million so far this year. Over the past year, it has dropped its headcount to 85 floor staff from 225, with more layoffs likely to occur within the month.

LaBranche has dropped to 80 from 330 and in the words of one of its executives, "We're going lower." Two weeks ago, the firm reported a quarterly loss of $5.6 million versus a $112 million profit from the year ago.

A source familiar with Bear Wagner Specialists told The Post that the firm had offered to buy back some of its senior partners' equity stakes within the past year at under 50 cents on the dollar.

Van Der Moolen, according to one of its executives, has cut its operating costs to $75,000 per day from $225,000 - and still cannot turn a profit.

Two people - one a former specialist, and one a current senior executive - told The Post that several of the smaller specialists may have a hard time remaining on the floor.

A former specialist executive told The Post that the root of their blues is that specialists have been forced to change their job description as electronic trading is now the norm.